Putting your money where your community is

Most people probably recognise the feeling of walking around their local area looking at unused places and vacant buildings and wondering what else those places could be used for. Could it become a new community pub, an arts space or maybe a play centre for families?

While actually doing it and turning ideas for community spaces into reality will seem unrealistic and undoable for many, there are inspiring examples from across the country of people taking action and mobilising the community to invest in converting local assets into the places and projects that they want.

Just some of the types of projects that can be funded through crowdfunded community investment.

In our new report we look at how crowdfunding models such as community shares and bonds have helped communities invest in everything from solar panels and setting up a rural broadband network to sports clubs, open workspaces and community pubs. We discuss some of the opportunities (it can both provide a vital new source of funding and also increase engagement in projects) and challenges (it can be really hard to run crowdfunding campaigns, access assets and run a community business) in using these models.

What is really clear from our research and interviews with projects who have succeeded in raising money in this way is that they are all driven by a passion to start something new for their community, resurrect something that has shutdown or to find new ways to engage the wider community in how places are developed. This is a fantastic, often untapped, resource that we believe cities, local government and other funders could do much more to utilise in their work on regeneration, place making and support for community initiatives.

However, as we discuss in the report, that requires innovative approaches to helping groups overcome some of challenges associated with raising money in this way, through offering flexible funding options, transferring or lending unused spaces, and investing in skills and capacity building. These standalone interventions are not enough on their own though, they must come from a different kind of funder with a different culture, ways of working and relationship with communities.

From one off civic crowdfunding to long term engagement / investment in Communities

Crowdfunding is now a billion pound market and has over a couple of years gone from being a disruptor of finance to part of the mainstream of how we lend, invest, borrow and raise money. However, the vast majority of the market activity and public attention is focused on business and personal finance, with relatively little attention given to the opportunity for it to change how we fund and engage with good causes.

However, things are slowly changing and there is an increase in awareness and money going to good causes via crowdfunding. In our previous research into Crowdfunding Good Causes and Matched Crowdfunding for Arts and Heritage, we have looked at the opportunities in funding good causes through donations and reward based crowdfunding. The reason we are so interested in investment based models is that while crowdfunding through donations is great for getting a project off the ground, it has significant limitations when it comes to enabling long-term engagement between the community of funders and the project they are backing, just as it has limits to how much can be raised and what for.

This poses a risk to the sustainability and opportunity for long-term impact of some projects. Innovative investment models such as community shares and bonds give projects and their supporters more long-term engagement and ownership, but these are often seen as too costly or complicated by community projects, which has been a barrier to their wider uptake. With the recommendations we present in today’s report, we hope to make it easier and cheaper to do, so that more community organisations can reap the long term benefits of investment based crowdfunding.

Portland Works in Sheffield raised over £300,000 from 500 investors to save a closed down metal factory from residential conversion and renovate it to host a centre for small manufacturing, independent artists and craftspeople, which is now home to more than 30 small businesses.

What about the risks..

Recent debate about crowdfunded community investment and the use of community shares has been dominated by what went wrong with Hastings Pier where a project that was once part community owned project got taken over (against the will of the community) by a local businessman.

While what happened with Hastings Pier highlights some of the risks and challenges associated with community investment, it is important to highlight that it is one of a few examples that we came across in our research where a community investment hasn’t worked. As we discuss there are many ways the design of investment, rights of investors and the governance of the organisation that can be applied to manage these risks, but looking beyond this it is important to remember that in a market where people are making investments there will always be a risk of failure and malpractice. What is perhaps more remarkable is that compared to the more mainstream markets of finance and crowdfunding, where start-up failure is common and banks face million pound lawsuits for malpractice, the vast majority of the crowdfunded community investment market is doing well. As an example, The Plunkett Foundation estimates that survival rates of community pubs in the UK has been maintained at 100 per cent and community shops at 94 per cent; a remarkable achievement, considering the five-year survival rate of all UK small businesses is only around 44 per cent.

More support and investment in a new relationship between communities, cities and local places please

We believe the opportunities in crowdfunded community investment more often than not outweigh the challenges and that there is a significant untapped potential for cities, local authorities and the communities they support in this. However, to realise this potential we need not just more funding and capacity building, but also a change in mindset on the role of local communities in playing a stronger role in managing local assets and the role of local institutions in enabling this. There are some good examples that others interested can build on, such as the Reach Fund (up to £15,000 of grant support), The Hive (up to eight days of consultant support) and the Power to Change Starter Fund, Booster Programme and Bright Ideas Fund which provide a mix of £6,000 - £15,000 investment, match funding and expert support.

However, more support is needed. We have put forward a range of ways in which institutions can help community groups through the challenges they face, from sharing success stories, to offering set-up grants or providing training opportunities. The level of commitment required for these interventions varies greatly, and the specific challenges they help tackle are different. It is therefore up to institutions to choose which works best for them given what resources they have at their disposal and the barriers which resonate most with the communities they serve.

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